Hidden cost of retiring early: $51,000 in medical bills

Since Medicare coverage doesn't kick in until age 65, retiring earlier than that would likely mean you would have to pay for private insurance.

Retiring early may sound really tempting. But leaving the workforce just a few years early can saddle you with tens of thousands of dollars in additional medical costs.

If a couple chooses to retire at the age of 62 instead of 65, they will face $51,000 in additional medical expenses, according to a report released Thursday by Fidelity Investments.

The major cause: Medicare coverage doesn't kick in until age 65. So without coverage from a former employer, which is an increasingly rare benefit, the couple would have to pay for private insurance.

"When you decide to retire early, you're on your own basically," said Sunit Patel, senior vice president of Fidelity's benefits consulting.

While the Affordable Care Act ensures thatretirees won't be denied coverage for pre-existing conditions, the couple would still face around $17,000 a year in health care premiums and out-of-pocket expenses if they bought a policy on one of the exchanges, Fidelity estimates.

With the help of government subsidies, retirees with moderate incomes would likely be able to lower that bill. But many couples with joint retirement incomes would not qualify, Patel said.

That's a lot of extra money to dole out for just three extra years of retirement.

"As part of the financial planning process, it's very important for individuals to take (these costs) into account," said Patel.

Save a million before you retire

Wait to retire until age 65 and the costs -- while still steep -- go down significantly. A couple retiring at age 65 can expect to dole out an average of $220,000 for health care costs over the course of their retirement, Fidelity estimates. That's assuming both the husband and wife are in average heath and live to be 82 and 85, respectively.

Retirees with chronic health conditions or those who live longer will likely face much steeper tabs, however, Patel said.

Plus, Fidelity's estimates don't include over-the-counter medications, like allergy medicine or pain relievers, or the cost of nursing homes or other long-term care, which can cost tens of thousands of dollars a year.

For the average couple retiring at 65, nearly half of the $220,000 would pay for out-of-pocket expenses, including co-payments and deductibles, according to Fidelity. Almost a third would be eaten up by Medicare premiums, and 23% would cover prescription drug costs.

Daunted by these numbers? Remember that you have savings options beyond your traditional 401(k) or Individual Retirement Account.

Many employers offer workers who choose high-deductible health care plans a tax-friendly health savings account (or HSA) where they can put aside more than $6,000 a year for a couple.

Like a 401(k), these accounts allow you to invest any unused money, giving you the ability to build up a sizable nest egg for health care expenses.

Unlike retirement accounts, not only do you save before-tax dollars, but you also won't have to pay any taxes on your withdrawal, including any investment earnings, as long as they pay for medical expenses.